Following a bearish 98 Bcf natural gas storage withdrawal report, March natural gas futures on Thursday morning immediately dropped 12 cents to trade at $6.01, but found it tough initially to get below the $6.01 level. Near-month futures bounced off the $6.01 level five separate times in morning trading before finally breaking through in the afternoon.

March natural gas futures hit a low Thursday of $5.85 before settling at $5.923, good for an 18.6-cent decline on the session. The last time a prompt month was that low was on Jan. 12 when February natural gas futures reached $5.83. The price action Thursday also broke March out of its $5.95 to $6.27 trading range, which had been in place for the past two weeks.

March crude and heating oil futures also moved lower. Crude settled down 79 cents at $47.54/bbl, while heating oil ended down 2.92 cents at $1.3128/gallon.

The natural gas storage withdrawal for the week ended Feb. 11 was less than most of the market expected and well below the 149 Bcf five-year average and the 187 Bcf pull from a year ago.

“The number is kind of meaningless, no matter what it is. What’s important is how far we are going to draw it down by the end of the withdrawal season,” said Ed Kennedy of Commercial Brokerage Corp. in Miami. “These reports really don’t affect the market except for the two minutes immediately after it comes out. Nothing has changed.”

While Thursday’s action broke through support at $5.95, then again at $5.90, Kennedy said he did not believe the March contract would go much lower in the short term. On the flip side, he added that looking at the amount of gas in storage to handle any late season cold weather, he can’t see any reason for futures to rally that much either. “I think the $6.30 area will bring the sellers right back in.”

It appears that the country is in for at least one more cold push before winter finishes. The National Weather Service’s eight-to-14-day outlook on Monday called for a wave of colder than normal temperatures to sweep the entire South as well as the eastern U.S. from Feb. 25 through March 3.

Noting that the shoulder months are now being traded on the board, Kennedy said the next thing that needs to be figured out is how far down storage is going to be drawn before the injection season hits. As of now, he said it appears it will stay above 1 Tcf, but how far above still needs to be determined.

“I would just look for the market to trade sideways for the near term,” Kennedy said prior to settlement Thursday. He noted that local traders on the Nymex floor can’t even make money day-trading this thing because it is so “illiquid,” with no follow through. “The way I categorized it when I was trading on the floor for all of those years is that the market doesn’t have any leadership,” he said. “You go short, it rallies back up on you. You go long, it goes in the opposite direction. There is no follow through in either direction. The market lacks leadership for the time being.”

Looking ahead, Kennedy said he sees a “slight bias to the downside. I think the thing that’s going to eventually make the market turn would be if we continue to probe the support below us until such time that we have uncovered just bedrock support for those who are going to inject.” He said that at midday with April 2005 trading at $6.12, December 2005 trading at $7.09 and January 2006 up at $7.30, the spread “would pay you to inject early.

“Quite logically, you have a reasonable expectation that you’re going to start seeing storage operators and utilities starting to do some hedging — not too much lower than these numbers,” he said. “The average cost of gas in storage last year was about $5.90, so we have a comfort level here that has been created mainly by the utilities, but theoretically by the storage operators too. Especially when they can sell the winter months for a profit, they’ll start to come in and take protection on the injection. That type of bedrock support could turn the market.”

The pull from storage was lower than people expected it to be. The ICAP storage options auction that ended Wednesday afternoon indicated a 108 Bcf withdrawal, while the industry consensus appeared to huddle around a 117 Bcf pull and others were calling for withdrawals as large as 160 Bcf.

Working gas in storage now stands at 1,808 Bcf, according to EIA estimates. Stocks are 328 Bcf higher than last year at this time and 313 Bcf above the five-year average of 1,495 Bcf.

For the week, the East Region removed 59 Bcf from underground storage, while the Producing and West regions withdrew 23 Bcf and 16 Bcf, respectively.

©Copyright 2005Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.